Your budget isn’t working. Here’s why.

Before my husband and I got our financial act together, we didn’t have a household budget. Since we didn’t have and sort of plan, we spent all of our discretionary income on “wants” and financed anything that cost more money than we had. And the scariest part is that we never really thought much of it. Our income always lasted until the next payday, so we never worried about making ends meet.

But, after years of frivolous spending, we finally snapped out of it. Becoming pregnant with our second child made us start thinking seriously about our financial future, and the impending impact of another mouth to feed actually made us afraid. All of a sudden, we realized that we weren’t kids anymore. Our twenties were spent chasing adventures and spending cash like it was going out of style. And here we were, in our thirties now and on the verge of having two children to take care of. And although we were completely clueless how things had gotten so out of control, we decided that we had to take control of our financial destiny.

An unfortunate truth

We started by combing over several months of bank statements, and what we uncovered was almost unbelievable. We quickly realized that we were spending over $1000 per month on groceries for two adults and a baby. We were also going out to dinner a lot. The truth is, we were actually eating most of our expendable income. We aren’t fancy folks, but we do happen to enjoy some expensive meals and ingredients. And we weren’t enjoying them in moderation; we were eating like a king and queen on a daily basis, and our pocketbooks showed it.

We took action

After seeing our pathetic results in black and white, we sat down and created a household budget. Since our food budget was the main culprit of our spending, we decided to make drastic changes. After some number crunching, we agreed that we should be able to feed our family for about $500 per month. We also decided that all restaurant spending would have to come out of our grocery category. So if we decided to go out to dinner, that meant that we would have to spend less at the grocery store. I wasn’t particularly happy about it, but our new plan made us much more thoughtful about our food spending. And since we still wanted to eat out occasionally, we made room in our budget by eating cheap meals and using up all of the items we already had in our pantry. It worked.

We also cut out all other non-essentials. I’m pretty sure I cried when my husband called and cancelled our satellite television package. I was a hopeless reality television junkie, and I was convinced I would be miserable without all of my favorite shows. But life went on. And more importantly, we started saving a ton of money. Using the debt snowball method, we allocated all of our new-found cash toward the various debts that we had saddled ourselves with. And after 18 months of rapid debt repayment, only our mortgage was left standing.

Household budgets can and do work

I didn’t know it at the time, but creating and sticking to a household budget was probably the best thing we have ever done for ourselves. It wasn’t always easy. And quite truthfully, the process made us take a hard look at ourselves and our shortcomings. On the other hand, we’re now more confident in our choices and building wealth like never before. We’re also on the same pen and paper budget that we started with, and there’s a reason why we haven’t changed anything. It works.

Sticking to a household budget can feel cumbersome and restrictive. It might make you feel vulnerable or deprived. On the other hand, creating a budget can completely change your financial destiny. Have you ever tracked your spending and created a budget? Did it work? If you’ve tried and failed, there are a variety of reasons why your household budget might not be working.

You’re underestimating your expenses. It can be difficult to estimate irregular expenses like utility bills. However, it’s important to be realistic about your estimated monthly costs. Overestimate your expenses if you have to. That way, you won’t always come up short.

You aren’t budgeting for everything. Are you forgetting to budget for gifts? Expenses for your children’s school? Did you forget your bi-annual car insurance bill? Make sure to think of everything that needs to be included in your monthly budget. Other expenses that are often overlooked can include home and auto maintenance and bills that are paid on an irregular basis. It’s more challenging to budget for these items, but it can be done. For example, if your car insurance needs to be paid every six months, you may want to budget 1/6 of your premium on a monthly basis.

You don’t have an emergency fund. Whenever unplanned expenses come up, an emergency fund can fill in the gaps without knocking your budget off track. It’s also important to only use your emergency fund for emergencies, and to not see it as an extension of your monthly budget.

Your expenses are too high. If your income is barely meeting your expenses, it is probably time to cut some things out. Do you really need the NFL Sunday Ticket? How about your smart phone? Is it necessary to get your nails professionally done? These are just an example of some of the expenses that can be cut out of your household budget if needed. It may hurt at first, but you will survive.

You aren’t keeping track of your spending. Certain budget categories can be trickier than others. Grocery spending, for instance, has a tendency to sneak up on me if I don’t track it closely. You can avoid going over budget by keeping an ongoing list of your spending in whatever category you find budget-busting. That way, you can check in at any time to see where you’re at.

You’re not saying “no” to yourself. If you are constantly spending more than you have budgeted, it might be time to take a serious look at your choices. If you want your budget to work, it’s crucial to learn to tell yourself “no.” Always telling yourself “yes” can guarantee budget failure.

Of course, not everyone needs a budget. For some reason, certain people can successfully execute their financial plans without writing them down. My parents, for instance, have always been the epitome of frugality and financial prudence despite the fact that they never really had a written budget. There’s definitely nothing wrong with forgoing a written budget if you really don’t need one.

However, many of us do need a written plan for the money we earn, and there’s no shame in admitting it. I’ve definitely learned that I’m hopeless without one. And if you’ve tried to household budget and failed, I have great news: it’s never too late to try again. Don’t be afraid to start from scratch. If you give your new budget a chance to work, you could quickly become a financial force to be reckoned with.

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I use a zero budget. All of the money is allocated to bills, debt and different savings accounts and I send it away on payday and I don’t touch it. Only a small amount is left for all parts of living and I spend it however I want but if I buy a restaurant meal then I have less for everything else. I waste a lot of the money on fast food and take out and sometime I am stuck with freezer burned chicken fingers and toast for supper because I did not plan wisely.

I am a bit like the grasshopper and not at all like the ants from the Aesop’s fable.

This is an awesome approach! For us, any time something comes up that we want and have the money for, we convince ourselves to buy it and just use some of the money we had planned to save. I need to start allocating the savings FIRST, and then the wants. We’ll have to settle with toast for dinner if that’s what it comes down to!

We do have a budget, but I think of it as a way for me to set goals and track our spending, not as strict limits that must be adhered to.

It took me awhile to come to this, and it developed out of frustration because I would “blow” my budget in some catagory every month and just give up.

I now have a very fluid budget that we update reguarly with new catagories as we see fit, and I firmly believe that budgeting is a very personal process and you need to play around to find what works for your family.

I agree though, budgets do work! We paid off $65K of debt and have now grown our networth quite a bit, and each year we find ways to spend a little less largely due to the tracking in our budget.

I 100% agree that tracking my spending was probably the biggest step in getting my finances in order. One thing for people to understand is that you won’t get it right and you will mess things up when you start. As you said, there will be things you forgot to budget for and that will throw you off. The key is to let those things teach you how to be better going forward rather than causing you to completely ditch your plan.

What I’ve found after keeping a budget for several years is that most of it just becomes automatic. I still track everything, but it’s rare that I’m surprised by something. Our daily habits have just fallen into line with our budget. It’s nice when it stops becoming a regular worry.

My wife and I do not have a monthly budget for expenses. Rather, we have lots of savings goals and that system works well for us. As long as we hit those goals, the rest of our funds are spent as we see fit. For example, we committed to saving X amount each year for vacations, Y for a special purchase, Z for retirement, etcâ€¦ Those goals are automated. Outside of that we choose to spend the rest of the money as we see fit without budgeting.

I do think itâ€™s worth noting that we do have a six month emergency fund in place, which covers all our monthly expenses if we both happened to lose our jobs. That required calculating our typically monthly expenses (e.g. utilities, mortgage, and groceries). In other words, we’re on a solid financial standing right now. I do not think our approach would work well if we were not.

For me it`s all about not having a fixed budget, because the month of May may not be like April in terms of expenses.. Therefore I always make a fresh budget every month, based on eventual fortcoming expenses such as birthdays (May sure is a busy birthday month), or electrical bills that only come quarterly. By always having a flexible budget, I can make sure to make ends meet AND save money.

I heart Mint for helping us sort out a budget. We also spend $1000/mo on food, but there are five of us, including two preteens (and their friends) who are bottomless pits. I like seeing where our money goes, and we’ve been able to adjust our budget to fit our life.

Sounds like diets. They only don’t work if you’re not paying close enough attention and if you give up too early. For both finance and diets, you gotta keep track of everything that’s happening and don’t give up!

I was one who never had much of a budget, but was still able to save money. But I wasn’t saving as much as I could have had I kept track of all my expenses. After getting married, we started using YNAB, and that has really helped. We can see where we’re spending, as well as save for specific goals. And my spouse is more of a spender than I naturally am, and he really enjoys looking at what we’ve saved and looking at the numbers. Being able to see the impact of a little self-denial on the pocketbook has made him more frugal than he’d been previously.

We use a spending plan and allowance system. We create an annual spending plan and a monthly spending plan which documents all our bills, including annual, semiannual, quarterly and monthly bills, the plan also documents our income, from work and investment properties. We carve out a mini spending plan for each investment property so those numbers are separate and apart from our general numbers.

Our monthly plan documents our bills, our savings goals and then what is left over (because we calculate it as such) is our discretionary spending allowance. We each get the same amount to spend on day to day spending, which includes groceries and eating out, per pay period.

And while we track our spending we don’t have fixed amounts for our allowance spending. I could spend my entire allowance on shoes and clothes but then i wouldn’t be able to order lunch in.

I also love Mint. It showed me that we were spending (gasp!) more than $600.00/month in gasoline. Granted, we live in rural Ontario and gas is quite expensive here, but still.. I was surprised how much we DON’T spend on food with the exception of $200 my DH spent last month at the bulk food store buying nuts and sweets for his snacks. I guess he’s busted :)

I have a rough budget, but it’s not a matter of strict adherence. A couple times a year we track our expenses for a month to make sure we’re still on the track we want to be but everything else is more fluid.

The biggest piece that keeps our budget working is having a person spending line. Having money that we can spend on whatever we want makes it easier to be good with the rest.

I use You Need a Budget, and have been for over a year now. It’s more user-friendly than making my own Excel spreadsheet, and rather than linking your accounts (which can let you “ignore” your spending) I input each transaction (sometimes painfully) so I can see where my money goes.

In addition to keeping my budget, it tracks my net worth and allows me to hide accounts that aren’t relevant at the moment (i.e. I’m not currently contributing to my Emergency Fund, so that budget line is “hidden” for now). It’s been great for showing where I overspend (food, both groceries and dining out) and for tracking planned expenses!

Yes, I’ll put in another vote for YNAB. I’ve been using it nearly a year, and it has revolutionized the way I deal with money. The software is fantastic, and the mobile app is one of the most intelligent and slick I’ve seen. It allows me to enter what I spend right from the location I spend it. It’s nearly painless to track how much, on what, where, and in which category I spend.

While I know it can import banking data, I don’t use it like that. I do everything manually and that lets me keep a constant eye on my income and outflows.

I thought this was an excellent article, Holly. So what I say below has nothing to do with the article or its quality.

Does anybody else who reads this blog often scroll past the comments made by those who are linking to their personal or money-making blog? I’m sorry if this comes across as harsh, but it’s hard to want to read your comments when they appear (at least to me) to be for self-promotion. Of the 13 comments I see above, almost 70% of them have hyperlinks. The comment might be on point and substantive, but I nonetheless am turned off by the hyperlink. This is especially the case when the comment is pithy and perhaps done on the fly to get your name out there.

Perhaps use your blog’s name without a hyperlink? We’re all smart enough to realize it’s a blog. And Google really does wonders for finding things quickly if we indeed want to find your blog. :)

Having said all this, I always read BlueCollarWorkman’s comments, because he regularly says something insightful.

At first I thought you meant people were posting links to their blogs within the context of their comment and I agree, that must be done sparingly. But I think you’re referring to the name of the person leaving the comment, and how it shows as a link to their site? That doesn’t bother me at all; I merely look at it as part of their identity. When you leave a comment, the form has a space for website, so why not drop it in? My site has very little to do with personal finance, and I doubt anyone here would visit it, but it’s part of my commenting identity, if that makes sense.

I prefer the links being there. Similar to you, when I see someone consistently posting ideas that mirror my own (like…Mrs. PoP, I think? And nicoleandmaggie?), I check out their site to see if it’s something I’d be interested in following.

So to answer your question, no, I don’t scroll past people with blogs. :-)

I think you’re being too picky. If someone has just a link in their name, it doesn’t bother me. It also doesn’t bother me if someone writes a thoughtful comment and adds something like “I actually wrote about (post topic) last month, and here’s my take on it.” That’s cool with me.

I don’t like the ones who just want people to click on their links. “Great idea!” and a link? PuhLEASE.

When you’re starting and revising your budget, you need to make sure that you’re realistic about your expenses. Once you’ve mapped out your actual expenses, you can see where you can start saving money.

I’m exactly the same as you were…I noticed that I never seemed to have enough money for everything that I wanted. And after combing over bank statements I found that each month I was spending enough money on eating to feed a small country!
18 months later I’ve got a lot more money and have dropped 10lbs, just by getting control of my monthly food spend.

Isn’t it crazy how much money can be spent on food if you don’t keep an eye on it? My husband and I used to buy crab legs at the store and steam them at least once a week. And while we ate them, we thought it was funny to watch “Deadliest Catch” on our expensive satellite television. Double Whammy!

A few of years back, I figured out our expenses. Without counting food, they came to nearly $5000 a month! Mortgage, taxes, insurance, gas, utilities, etc. all add up. And food was another 1200 easily. We didn’t do a written budget so much as this is how much we can spend budget.

We allotted a firm $800 for groceries. Back then it was enough. I generally came in around $700. The kids have grown, prices have increased and we added one more child. These days it’s a struggle to keep our groceries under $1300. Our groceries include anything we might buy at BJ’s, Target or Walmart, so socks and underwear and other items are part of that budget.

We also did an adult allowance/household spending for cash items. This is kids’ field trips, poster boards, haircuts, AND our spending money, including quick stops for pizza on busy nights.

These last two months we ended up taking money out of savings twice to supplement our household allowance. It can’t continue. We have to buckle down as a family. We started the cutbacks last night when I took out cash for the new month. The kids decided they’d rather have take out pizza on Friday nights this month than new field day t-shirts. I was surprised – Probably more than half the kids at their school will have the special shirt on field day. As I expected, my two little ones didn’t care. But the other two affected by the decision were adamant they’d rather have “real pizza” than frozen even if it means sacrificing this year’s field day shirt.

This time of year, because it’s so busy, is always a big spending time for us. It’s more painful this year for a lot of different reason. I’m proud of my kids for being able to find places to cut back.

My wife and I have a really detailed budget, but I feel like it gives me a lot more freedom than not having a budget. When I didn’t keep track of my expenses I would always worry about whether or not I’d have enough money or if I could afford something. Now, I know that if it’s in the budget I can afford it and I won’t run out of money so I feel fully comfortable purchasing the item.

That being said, I agree with all of your points above about why a lot of people’s budgets don’t work. My wife and I are pretty fortunate that ours works well for us and we have enough money to do everything we want.

In my mind the key element to making a budget ‘work’ is monthly reporting and follow-up. You establish a budget, and you track spending. All that work is worthless without sitting down with a monthly report of actual vs. budget spending and income. Then the real value of a budget becomes clear: Just like in a business, the monthly report provides management information, and you’re managing your household and financial life. Understanding why the differences between actual and budgeted spending occurred will naturally lead to decisions and changes to save money, both in the short and long term. It works!

I have a fairly detailed budget, and have had one for the last 35 years or so. It was much harder when the kids were small to stick to it.

Now, however, we are finding as we approach retirement that while we can live within our budget perfectly well, our grown children keep having emergencies and coming to us for help. They are all at the point of kicking off their lives and careers, and we are certain that they will become responsible adults, because they are responsible young adults. Of course we want to help them, and we mostly can afford to do so. But this is going to stop next year when my husband retires.

My biggest problem with this is learning when to say no to the outside factors that throw our finances into a tizz. We will, at some point, have to deal with emergencies of our own as we get older.

Two are still in college, having not followed the traditional route of higher ed right out of high school — a good idea for both them and higher ed. The other is an artist — very good, but not in a high earning field, and so is looking for something else. None has been in a position to build up an emergency fund, although all of them know that they need to do so. We have emphasized this. They should all be on their feet in the next two years. This is one of the hazards, though, of waiting to have kids — it’s not the babies in your 30s and 40s that do you in, it’s the teenagers in your 50s and 60s. And the young adults in your 60s and 70s.

One other wrinkle — one of the kids suffers from severe depression and on occasion has to be pulled out of a black hole. This, in addition to being exhausting emotionally, can also be exhausting financially. Truthfully, this is what I am most worried about as we go into retirement. I am all for expecting children to be self-sufficient, and our kids want to be self-sufficient as well. But what do you do when one of them is unable to do so? How can you cut a child off at that point, no matter what the age?

I think the hard truth is that at some point, you may need to cut them off complete in order for them to learn the hard lesson about becoming independent. It is a natural impulse to want to help, but that can creep into enabling if you are not careful.

You should be able to provide ample warning about what is coming and let them be adults and prepare. “In 2 years we are retiring and at that point, we will no longer be offering any kind of financial support to you.” Then offer all the love and advice (if they ask) and other non-monetary support you can. At some point, they have to learn to swim.

I, too, keep a detailed budget on a spreadsheet and have been doing so for at least 15 years. What I’ve noticed over time is that a spender is a spender. First I was a credit card junkie. Then I stopped that. Then, as others have mentioned, to assuage the pain of not charging, i became a foodie, and the grocery bills FOR ONE PERSON were tantamount to the c/c charges, just not incurring the debt. So then I had to take a hard look at that, cut that back and start saving. It’s been a process. You can’t be on good financial footing without savings even if you live within your means and don’t charge. So, my advice to anyone would be, whatever method you use to budget, whether casual or detailed, start by saving first, then figure out how to make the rest pay your bills. Otherwise, you might stop charging only to be giving it to Whole Foods or the hardware store to satisfy that need to spend. I don’t know about you, but my name is Janice and I’m a spendaholic….LOL…

Sadly I am the same way. So I have all my savings deducted off the top, before the check even gets to my bank account. Then I budget for my necessary expenses that month. What is left over is what I can spend on frivolous stuff. If I don’t do it in that order, I end up in the hole. I feel frustrated and guilty that I love spending money so much but at the age of 47 I have to admit that I am unlikely to change. So I need to find subterfuges to keep myself on track.

We use an “escrow” system for bigger annual or quarterly expenses – property taxes, insurances, the kids preschool (which is prepaid annually), end of year charity donations, etc. The estimated annual amount is divided by 12 and every month we move 1/12th into a special account, and every month when we have a payment we transfer back as much as needed. This really smooths out the spending patterns
Otherwise we don’t have strict budgets, but we use Mint, and I usually compare end of month whether we overshot a certain category.

We’re one of those people who don’t budget. However, I think it’s important to note that we are in a good position financially (no credit card debt, no student loans) and we make enough income/have low enough expenses that we’re not scraping the line. I also find that our months vary a lot, so I normally just project our cash flow about 3-4 weeks out, so I can see how much extra we have. Sometimes it’s a little, sometimes it’s a lot.

I might get ripped for this but essentially our budget is I give my wife an allowance each week to spend however she wants and I do everything else financially.

Of course there is a back story, being she doesn’t handled money well, doesn’t want to and had racked up credit cards 3x prior to the allowance method among other issues that happened. She also is great her job and makes very good money.

Since I took over everything our costs are way down, our networth is way up and her credit score has gone up 150 pts, among other things. So instead of being broke at 70 like her mom, we will be in good shape. It only worked because she realized the paths she was on and accepted help. I would have preferred if she took responsibility and did her self, but very simply if I gave her $500 a week should would spend it, if I give her $100 she spends it. If she doesn’t have it she doesn’t spend it. She doesn’t have a credit card either, just a bank card with credit for emergencies. Of course I manage our funds so we can still do stuff that doesn’t come out of her allowance and I buy a good chunk of her personal H&B stuff, mostly for free cause I’m super frugal that doesn’t come out of her allowance either. We came to this through trial and error but it works for us.

I don’t see anything wrong with what you’re doing–as a temporary measure. But your wife really needs to learn to handle money better, taking baby steps if necessary and getting counseling for the underlying problems that are causing the money disconnect. You’re not going to live forever. What if you die or otherwise are unavailable to be the money watchdog? She’ll be broke in her old age just like her mother.

You hit the nail on the head here Holly. I was very similar before I got on a budget and thankfully my wife was on the same wavelength so it was easy to put one together once we got married. It comes down to looking at what you have and where you want it to go and work for you. I know a lot of people find budgets restricting, though we actually find it quite freeing because we have the freedom to make choices we want and can see how it’ll impact our bottom line.

I have a question for those of you that follow the quick and dirty 50/30/20 budget –

Does the 20% you allocate toward savings INCLUDE the sum you put in your 401(k), or do you do 20% on top of what you put in your 401(k)?

And if it’s the latter, then do you do 20% of your net income, your gross income, or your net income after the 401(k) is deducted?

So for instance, if I make $100K, and put $10K in my 401(k), what should my 20% savings goal be (I know it can be whatever I want, but I know I work better with actual goals in mind, and I’m looking for a good guide).

I was confused about that as well, and in the end, I save as much as I can. I don’t think 20% can go very far, even if you earn 100K a year. The more people earn the more they spend, so for me it would be more prudent to save more. Since I don’t even come close to earning 100K a year, I just save all that I can.

As “All Your Worth” explains it, you calculate the 50%, 30%, and 20% out of your “after-tax income,” which is your gross income minus JUST your taxes. If you have 401(k) contributions withheld from your paycheck, add them back in to get your after-tax income, then count them toward your 20% savings goal. Anything else that’s automatically deducted from your paycheck (health insurance, etc.) should also be added back in, then counted as “must-haves.”

And remember, if you’re paying off any debt (mortgage, car loan, student loans, credit cards, etc.), it’s only the amount you pay in excess of the minimum payment that counts toward “savings and debt reduction.” The minimum payments themselves are “must-haves,” because they are payments you must make.

I use the 50/30/20 formula too (approximately) but I reverse the percentages for savings and wants – I think saving 30% is important for me since I started late, so I take 30% off my gross for 401K and then spend 20% of net.

IF you add back your 401K contribution to your after tax income, are you supposed add back only a portion(amt – tax percentage) because 401k is pre- tax and you’re adding it back to an after tax amount? I hope this makes sense…..TIA

For myself I use what Jane Savers refers to as the “Zero Budget” (haven’t heard the term before, but like it). I allocate set amounts from every paycheck for paying my mortgage & student loans, for various savings-which includes a small “Fun Fund” and savings for annual expenses-and an allowance for regular expenses, like gas and groceries. The money goes straight to the various accounts so I don’t touch it, with the exception of the regular expense allowances, which I use when I fill up or go shopping. What is left is my ‘free money,’ which I can use for whatever I want.

My husband’s budget is more complicated since as a construction worker his paychecks are as variable as the weather. For him, we have monthly savings goals and he puts expenses for his everyday needs (gas & groc) on a credit card that we pay off every month. When he gets his weekly paycheck, it first goes towards his share of the household bills, then to paying off whatever he put on the cards, and then towards the savings. His paycheck is almost always sufficient for bills and the credit card, but how much he has left for savings varies. His weekly savings goal is 1/4 of the monthly goal, and if he meets that goal the remainder of his pay is for him to spend however he wants. If he falls short, the difference gets added to next weeks’ goal, and rolls over until he’s caught up. While a bit backwards according to traditional finance logic, this ensures that even when his paychecks are slim the bills get paid, and although his contributions to savings aren’t steady he is always on target for annual goals by mid-summer.

Mint is great because it allows to count everything and gives you alerts if you are spending too much or had a bank fee charge. It also gives you options on ways to save and you can also set goals.

I do my best to budget-I am a stickler on a budget but my husband doesn’t follow it closely so I allot $200.00 for his atm pulls. Sometimes he gets groceries with it, or we go out to dinner or he gets the kids something they need. I do tell him when he has reached his atm limit though.

My budget system has evolved over the last few years. Taking a Dave Ramsey class helped with my mindset. These are some things that work for me:
-Primarily using a zero-based budget
-Visiting my budget monthly
-Using Ing subaccounts-including my Christmas subaccount
-Having emergency funds
-Having a month to month list of irregular expenses-for example: life insurance, property tax, usual vet visits, rural fire dues, birthdays, etc.
-Tracking expenses every few months: groceries, gas, hardware store visits, etc.
-When mortgage is paid off I plan to incorporate an escrow system for many expenses

Another reason to keep a spreadsheet with all your expenses is for “posterity”. It helps to remember what the heck you spent the money on three years ago, and also to see how far you have come. I started tracking my spending almost 8 years ago, and have not stopped and will never stop. It’s now a habit, and a good one too.

I used Mint for a year, but gave up on it because it was not very good at hooking up with my different accounts, so my “homemade” spreadsheet worked best.

I also calculate my networth on my b-day. It’s the best b-day present I’ve ever given myself.

The budget process reveals a great deal about individuals. Similar to a diet, you need to be aware of what you are eating fro a diet to work. For a budget and change to work, you need to be aware of your spending. It is the first step of figuring out what to cut.

I *have* to track my spending, and do so daily. My boyfriend and I bring in less than $45k per year and live in one of the most expensive places in the US (Santa Cruz, CA). Due to diligent tracking, we still save about 30%.

We don’t really buy anything new– We utilize thrift stores and free piles– but our food spending is high. Since it is our main source of entertainment too, I figure that it balances out… I.e., If I consider that we spend that much on food, clothes, entertainment, and electronics, it seems like we’re doing a great job! (Ignoring the fact that we spend close to nothing in the other three categories…)

“We do have a budget, but I think of it as a way for me to set goals and track our spending, not as strict limits that must be adhered to.”

“I was one who never had much of a budget, but was still able to save money. But I wasnâ€™t saving as much as I could have had I kept track of all my expenses.”

Both of these comments were taken from above, mostly because I relate to them.

We use the pear budget excel file that’s available for free because it’s very easy to use and takes two seconds of my time. We try to stay within the designated budgets, especially in certain areas (food!) because otherwise they’ll get crazy. But we actually are pretty fluid when it comes to certain things (i.e. house updates/buying stuff for the home) that are adjusted based on where we are at the time, personally and financially.

We used to save money as well but it wasn’t until I actually wrote it down and saw it staring back at me—and really, kept track—that I saw how much money I could have been saving the first two years we were living together. But, better to learn sooner than later.

My budget goal is to get my monthly billed expenses down as much as possible. For me that means switching my car insurance payment to once/ year, and when I refi my house in a few months, removing escrow so I pay my taxes and insurance once/ year. Doing this removes about $300 from my monthly budget..refinancing removes an additional $100.

Granted I’ll still need to pay those bills, but it’s a psychological thing I guess; I feel less overwhelmed by bills if I am shifting those funds into monthly savings (at least they’ll earn interest there) versus paying it out to the companies, and because my savings account will be extra padded, it’s less “painful” to write that $1000 dollar check or whatever.

Hopefully by next year my monthly budget for billed expenses (mortgage, phone, internet, utilities) will be less than 20% of my monthly income.

Course this only works if you have the will not to spend the cash in savings.More than anything I’m hoping it will just make life less complicated.

We don’t use a budget, exactly. But I track every penny that comes into/goes out of the house, by category on a monthly basis. This was the single best thing I ever did to get a clear idea of what our cash flow was, and where our money went.

After tracking for 6 months, we reviewed each category and decided that some (entertainment) were a little too high (not enough pleasure bang/$ spent) and others were too low (I increased my gardening budget and have never regretted it). We eat really well and spend a lot on groceries because we eat whole food, with a lot of organic produce. But I’m happy to have a grocery budget of 500/month for the two of us, given that it keeps us healthy and keeps us both at our college weights, even though we are 42 and 51, respectively.

I found that graphing our expenses and savings really motivated us to cut back or increase certain categories of spending and saving. Something about that visual! Every time we pulled that “total debt owed” graph line down, or the savings line up, I felt so proud.

It all comes down to discipline,discipline and more discipline. Financial budget planning should be a daily proactive activity.It will be very easy to go back to bad habbets if you are not keeping a close eye on your spending.At the end of it all though, it will be well worth it.

I was most budget-conscious when I didn’t make much money. In my 20s, I had to watch every penny because I could barely make ends meet.

Now, years later and with a much higher income, I don’t have a strict budget, but I basically try to recreate that earlier scenario. Every time I get a raise, I increase the amount I overpay my mortgage, and/or increase my auto-transfers to savings. So the money I have in checking is enough to pay for my non-mortgage bills, food, a totally reasonable amount of fun, gas, etc. — but nothing else. If I start playing fast and loose with my food spending, I get the “pinch” I used to have in my 20s – I have to watch my checking account and make sure I have enough to cover everything until the next paycheck. If I’m lusting after an expensive item, I have to cut back for a few weeks or months until I have the extra money saved up in checking.

Essentially, my “take home pay” (after I overpay my mortgage and pay myself) makes it seem like I make 50% less than I really do. I know I can’t spend more than what’s in my checking account, and the extra mortgage and savings money gets whisked away before I ever see it.

This only works if you can avoid using credit cards. I only use them for work-related travel (which is reimbursed), or big purchases that I want the miles for, which I pay back right away from money I’ve saved in checking.

This is not a perfect system, but psychologically, what keeps me from spending is knowing I only have X in my checking account to last for two weeks, just like those years when I was first out of college.

I should add that I also use Mint, primarily to see spending trends. If I notice I’m spending a lot on something (more than the previous month or year), I make a note to keep a closer eye on it. I actually love digging down into trends and comparisons. :)

I use a spreadsheet for my budget, and it’s based on a monthly average for the whole year. That way, I can go over budget one month as long as I make up for it by going under budget other months (e.g., most of my gift spending occurs in December, so I go over budget for gifts in December but under budget most other months).

I think the key to a successful budget is to build in some margin by living below your means. I budget for more than I think I will actually spend, as well as a reasonable amount of savings, and make sure it doesn’t exceed my income. I typically stay well under my budget in most categories and save/invest what’s left over. But even if I have higher expenses than usual, I’ve already allowed for it in my budget, so it’s not a problem. Finally, I have a “miscellaneous” category to allow for things that don’t fit into my normal expenses.

A lot of expenses are unpredictable or irregular, so if you try to budget down to the penny, you’re doomed to fail as soon as you encounter an unexpected expense or cost increase. The only way to make a budget that can weather the unknown is to live below your means.

A great post Holly! Was vividly reminded of the days of last year when I was going through a very crucial financial phase – had to cut down all those luxury. But as you quite rightly said, budget works if you make and follow it seriously, it did for me as well.

I agree, Holly, budgets rule for most of us, even if some can manage without. If you are talented in spending and challenged in saving – like most of us are – drafting a budget can really change things. First, by figuring out your incomes and expenses, you get a picture of where your money is going – often different and uglier than you expected. Second, that picture gives you ideas of where you can and should cut. Third, when taking the step of converting that picture into a budget to follow, you will get the help that most of us need for getting yourself on the right path with your spending.

During my earlier years, I was amazed how easily my spending adjusted to my income whenever the income went up. This went on and on, until I decided enough is enough, and did just what you recommended: I put in place a budget. Man, what a difference it made! Almost suddenly, my savings really started to grow, rather than just fluctuate up and down. Very soon I was able to start investing those savings in ways that really made a difference, so that the cash flow from those investments made my savings grow even faster.

Now, years later, I wouldn’t need budgets any more: my income has grown manyfold due to the investments, and I end up saving 60% of my income. I still budget my money, though, in order to understand how much comes in and where it all goes. Following that budget has become easy: seeing what regular saving does to your finances, my motivation remains super-high to keep my expenses reasonable so that my assets can continue growing.

I just wanted to comment on how interesting peoples’ responses have been. The common thread seems to be that people all have found different ways to overcome the mental hurdles to smart spending/saving. When I was young, I think thought saving was ALL about how much you made. As I’ve gotten older, I’m convinced it is mostly about mindset.

Budgets are fine but the strategy I took was simply to save at first 30% of my wife’s and my combined income and later when we were expat’s much more than that (up to 70%). Starting out I did not have a really high income – standard starting MBA salary and my wife stopped teaching when our first child (the current “broke millenial)was born. Fortunately both my wife and I got out of grad school with no debt so had no loans to pay off. The only thing we ever went into debt for was a house. Financial independence is about setting priorites. We were frugal but still managed to travel to over 20 countries as we were raising our children

My wife and I follow a “written budget”, which is held in a spreadsheet. The reason for this is because it allows me (I’m the budget maker in the house) to guide our expenditures, and be able to look back in time to see what we didn’t allow for, or how particular budget items have increased over time.

Boy, does this sound familiar! Years ago, when we both were employed, we spent as you did, and really enjoyed it. Never had a problem and didn’t accumulate credit card debt either. Then came the kids…1 then 2 then 3. That is when the eyes opened wide having to live on one income with 3 extra mouths to feed. I used a crude home made budget for years and it worked fairly well. I used a couple of software packages then settled on YNAB. It’s now quite a few years later and we do quite well and have no debt, not even a mortgage. Budgets do work and I highly recommend them.

I struggle with the concept of a budget as it usually is defined. I kind of like the idea of having all sorts of buckets for money and tracking everything, but in reality, I have zero interest in micromanaging my spending to that level of detail. Our concept of a budget goes as follows:
1) Money in = paycheck minus taxes, healthcare spending account contributions, healthcare, 401(k) contributions, etc.
2) Subtract automatic savings
3) Subtract auto bill payments
4) Whatever is left over gets spent in some fashion. Whether that be clothes, entertainment, groceries, eating out, filling up the tank, or whatever else strikes our fancy, it all comes out even somehow.

I guess if things weren’t “coming out even somehow” at the end of the day, I would put more thought into this. Since it works out and I am saving an amount that makes me feel comfortable, I feel okay not spending more mental energy on the whole deal.

Your experiences are really similar to mine. My husband and me havenâ€™t cared much about the future and spend money without considering about savings. Fortunately kids were not in picture and they came only much later. Our expense lead us to consider filing for bankruptcy. DH had a house in his name but no one was willing to give us mortgage. We have consulted almost all the lenders in our city and finally Prudent Financial Services agreed to give us mortgage. And from there, we have started a new page of our life. We have made a tight budget considering all the factors. It was really difficult for us but we had no other options. We started saving bit by bit and slowly paid off our debts. By the time we had our kids, we were in much a stable position.
Reading your blog took me back to those times, I am glad that you guys understood your mistakes earlier than us.

Thanks for the article, its nice to know that other people find the need to use a budget instead of just blindly spending (which I used to do)

I have everything budgeted out, especially our debt. I have 2 tracking sheets as well as BMO <oneylogic which I cannot say enough great things about. It automatically analysis and categorizes all of your spending. We ONLY use debit/cheques so we can have everything tracked to the dime and see our spending habits. We also make budgets on Moneylogic and it allows you to see what other people's budgets are for specific categories that are in your community. Its an amazing tool.

On my other spread sheets I have our debt, the interest rate, original amount, current amount and amount paid I find this to be great as it feels awesome when you can plug in how much you've paid. On the same sheet I have the pay off date whichkeeps me focused. We all know how hard it can be to to send so much of your money away toward debt but to know that in x amount of months/years that debt will be gone and you'll have more money in your pocket is one of the best incentives I can think of.

One thing that will mess with your budget is unexpected purchases i.e… bridesmaid dress, new brakes, gas to visit someone for their last minute invite, etc… I'm having a hard time staying out of overdraft for those unexpected costs. We don't have an emergency find because truthfully we can't really afford to . Most if not all of our money is allocated to debt, savings, mortgages food, gas etc.. with little left over for fun time. Any suggestions would be soo helpful

Thank you for this post. Makes me feel motivated knowing it’s never too late to get finances in order. I started using YNAB for this purpose, and found that it really helps me control and focus what I am spending our money on, rather than just “tracking”. There are so many times that I wish I could go back and have done things differently, but have to believe it’s not too late.

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My name is J.D. Roth. I started Get Rich Slowly in 2006 to document my personal journey as I dug out of debt. Then I shared while I learned to save and invest. Twelve years later, I've managed to reach early retirement! I'm here to help you master your money — and your life. No scams. No gimmicks. Just smart money advice to help you get rich slowly. Read more.

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